The Federal Reserve has announced plans to build a new round-the-clock real-time payment and settlement service that will compete for business with The Clearing House's RTP network, backed by some of the nation's biggest banks.
The news comes just weeks after democratic senators in the US moved to push a bill that would have required the Fed to develop a real-time payment system as an alternative to The Clearing House network.
The Clearing House, for its part, has been lobbying the Fed to designate RTP as the US' national real-time network. In April, TCH reached out to community banks and credit unions, opening up four new seats for smaller depository institutions on the RTP Business Committee.
However, smaller banks remain worried about the power wielded by the banks in running a privately-controlled system.
"Everyone deserves the same ability to make and receive payments immediately and securely, and every bank deserves the same opportunity to offer that service to its community," says Federal Reserve Board governor Lael Brainard. "FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers."
He points out that the Fed has traditionally provided payment and settlement services as part of its core function. However, the big banks behind The Clearing House have insisted that the entry of the public agency into the real-time business would raise interoperability issues and slow the uptake of its already operational instant payment system
In 2018, the Board requested public comment on potential services that could be developed by the Fed to support faster payments. Of the more than 350 comments received, over 90% supported the provision of a round-the-clock real-time payment and settlement service alongside services provided by the private sector.
In addition, the Board is announcing its intention to explore the expansion of Fedwire Funds Service and National Settlement Service hours, up to 24x7x365, to facilitate liquidity management in private-sector real-time gross settlement services for faster payments and to support a wide range of payment activities, beyond those related to faster payments.
The Board is now requesting comment on how the new service might be designed. It anticipates the FedNow Service will be available in 2023 or 2024.